Ethereum vs Bitcoin: Similarities and Differences

The performance of BTC and ETH often serves as a benchmark to gauge the overall health of the crypto market. Despite their dominance, these cryptos function very differently from one another. That on what you mean by “better.” The market tends to follow Bitcoin, so any positive change tends to reflect with other assets like Ether. A diversified investor would allocate capital towards both. For Bitcoin’s scalability, developers are focusing on the Lightning Network. This second layer solution opens bidirectional payment channels between Bitcoin wallet addresses, increasing transaction speeds and reducing costs.

Ethereum vs Bitcoin the two cryptocurrencies compared

To ensure Ethereum remains ASIC resistant, the Ethash Proof-of-Work algorithm was developed. To achieve ASIC resistance the Ethash mechanism requires significantly larger amounts of computer memory. Unlike Bitcoin, which sends digital signatures, Ethereum sends the cryptocurrency tokens. The mining process is best completed by GPUs, which allows for far more participants within the Ethereum network.

How to decide whether to invest in Bitcoin or Ether

An important perspective to maintain on the two cryptocurrencies is that they are not directly competitive and their fates will likely be independent of one another. It is entirely possible that either or both can be wildly successful or fail completely in the long run. Ethereum on the other hand is a network built for the development of decentralized applications (dapps). The network, or blockchain, is powered by its native cryptocurrency Ether (ETH).

Before making financial investment decisions, do consult your financial advisor. At one point, more and more miners appeared to have focused on Ethereum for all of their mining wants and needs. Admittedly, it was much easier to mine Ether, and as the popularity of this crypto asset grew, it was only natural that there was also an increase of attention towards its “extraction” processes, too.

Ethereum VS Bitcoin: Summing Up

We believe everyone should be able to make financial decisions with confidence. NerdWallet, Inc. is an independent publisher and comparison service, not an investment advisor. Its articles, interactive tools and other content are provided to you for free, as self-help tools and for informational purposes only. NerdWallet does not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances. Examples are hypothetical, and we encourage you to seek personalized advice from qualified professionals regarding specific investment issues.

Ethereum vs Bitcoin the two cryptocurrencies compared

Ethereum, on the other hand, was designed to do more than just send and receive ETH. There is, however, one case where the Bitcoin mechanism offers an advantage – a transfer for multiple recipients. In Bitcoin we can just create one transaction with one output for each of them. In Ethereum, each transfer can have only one recipient, so we have to pay the fee more than once, and then monitor several separate transactions to be sure that everyone received what they should have.

Despite this volatility, Bitcoin remains the largest cryptocurrency by market capitalization. A major criticism of proof of work is that it is highly energy-intensive because of the computational power required. Proof of stake substitutes computational power with staking—making it less energy-intensive—and replaces miners with validators, who stake their cryptocurrency holdings to activate the ability to create new blocks.

Proof-of-work is required to make sure a blockchain runs smoothly and to prevent the misrepresentation of data, such as using the same cryptocurrency for two different payments. Without a smart contract, you’d have to give the money to someone else and then trust them to send it onwards, even after you’re gone. Smart contracts are one of the reasons why everyone has been so excited about cryptocurrencies and the blockchain. They’re like having a robot that can do things automatically and which theoretically can’t be hacked or tampered with. A dApp is an application that isn’t controlled by a central authority.

That’s why it’s important to only invest money you can afford to lose, and do your own research to ensure you’re comfortable with the risks involved in cryptocurrency investment. As you can see from the table below, Ethereum is a babe in arms compared to big brother Bitcoin — it has only been on the market since 2015. It’s not surprising then, that Bitcoin’s market capitalization is more than double Ethereum’s. Ethereum is used for various applications, including DeFi, NFTs, supply chain management, and identity verification.

Key Differences

It claims that as an app it doesn’t optimise for advertising revenues, an issue it says users of centralised apps suffer from. This consensus mechanism asks participants to stake their own money for the chance to validate transactions and add a block to a blockchain, rather than carry out complex computations. In comparing various financial products and services, we are unable to compare every provider in the market so our rankings do not constitute a comprehensive review of a particular sector. While we do go to great lengths to ensure our ranking criteria matches the concerns of consumers, we cannot guarantee that every relevant feature of a financial product will be reviewed.

Where Bitcoin supports quite simple scripting (comparatively), Ethereum can handle much more complexity thanks to its smart contract system. It makes it possible to set simple rules that have to be followed, effectively forcing contractual compliance in a manner that would never be possible with a real-world contract, without some sort of middleman. As much as it seems most likely that Bitcoin will remain the king of the cryptocurrencies for the foreseeable future, there is no guarantee of that. That’s not to say that Ethereum and its coin, Ether, have been ineffective.

  • Governments have introduced regulations to address these concerns and oversee the rise of Bitcoin investment products like exchange-traded funds (ETFs).
  • For example, Binance is based in Tokyo, Japan, while Bittrex is located in Liechtenstein.
  • Now, when we receive money from someone, our address is encoded in the transaction, so it’s clear that these funds are meant for us.
  • Bitcoin and Ether are two of the most trusted cryptocurrencies currently in existence.
  • SwapZone is a great aggregator that compiles 15+ exchanges and 700+ digital assets into one easy-to-use platform.

Both cryptocurrencies have widespread adoption, so these networks should have strong staying power as the blockchain industry matures. When comparing Ethereum vs. Bitcoin, the question is not which of these two leading cryptocurrencies is better, but rather what are the strengths and differences they each may offer investors? That depends who you ask and what your needs are, as both systems were designed to do slightly different things—despite both using blockchain technology. Now, when we receive money from someone, our address is encoded in the transaction, so it’s clear that these funds are meant for us. In turn, when it’s us who want to send money, we sign the transaction with our private key (we are creating a digital signature).

Average Transaction Cost

This will decentralize the network further, provide better throughput and bring network costs down significantly. PoS will have users stake ETH to secure the network, a much easier process than setting up and running a cryptocurrency mining rig, which is how miners validate Bitcoin via its PoW mechanism. Ethereum’s native cryptocurrency, also known as Ether, can be used to pay for services or transaction fees on the network. Though its adoption in mainstream finance trails Bitcoin, many people have also used it as a speculative investment. Both blockchains can be used to store and transfer value, however Ethereum can be used to implement decentralized applications (dApps). Ethereum is a decentralized computing platform for creating other decentralized applications such as automated market makers, NFTs, exchanges, currencies and so much more.

We recommend that you review the privacy policy of the site you are entering. SoFi does not guarantee or endorse the products, information or recommendations ethereum vs bitcoin provided in any third party website. Andrew Munro was the global cryptocurrency editor at Finder, covering all aspects of cryptocurrency and the blockchain.

Mining and environmental impact of Bitcoin vs. Ethereum

There will never be more than 21 million Bitcoin in existence and it’s expected to reach this limit by 2140. The Ethereum network is utilized by both dapps and centralized organizations such as Microsoft. A flexibility for development and appetite for innovation has been the backbone of its success.

The investing information provided on this page is for educational purposes only. NerdWallet, Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments. Many or all of the products featured here are from our partners who compensate us.